Article
June 1997: Futures and Options World
A Solution for End-Users: Principia Partners, founded by a group of former
traders, offers a software system developed for traders, but of particular
appeal to end-users.
–
Neil Wilson reports
There are many software suppliers that claim to offer sophisticated
decision-support solutions for derivatives dealers and professional traders.
Not many, however, claim to offer the sorts of sophisticated functionality
required by traders, but in a way that is also suitable for the more specific
needs of end-users. One such provider is Principia Partners.
Although Principia was only founded in January 1995, its system was developed over nearly a decade by a group of traders who have stuck together since the days of Drexel Burnham Lambert. Its main product, Principia Analytic Systems (PAS), claims to offer an easy-to-install, easy-to-maintain packaged solution that can put end-users onto a more level playing field with dealers.
PAS has been developed over the past six years to be used expressly in a complex dealing operation. It is a fully integrated front-to-back office derivative product trading and risk management tool. "What we have is unique," claims partner Brian Donnally. "It is a turnkey system, which is perfect for end-users. It takes two hours to install and only 10 minutes a day to maintain." Front office features include the full panoply of interest rate instruments, from simple cash, futures and fixed-to-floating swaps to exotic options, amortising, roller-coaster and quanto structures. This is backed up by a database going back to 1987 in US dollars and to 1991 for most other leading currencies.
PAS looks sophisticated enough to be used by dealers, and has been sold to some, according to Donnally. But it is also a closed system, he points out, which makes it less suitable for those dealers who "don't want the quick turnkey solution" and who want to write their own code. Principia has thus attracted most attention so far for its sales to end-users like the US Federal Home Loan (FHL) banks. At least eight FHL banks have now bought the system.
Principia is led by Kenneth Sullivan, formerly head of mortgage-backed securities research, high grade fixed income research and interest rate products trading at Drexel. Sullivan left Drexel in 1989 to start a joint venture with New England Mutual Life Insurance Company. The venture, called Mercadian Capital, started up in 1990 and became an active dealer in derivatives. Subsequently, in 1993, the employees of Mercadian in New Jersey and London went on to set up a derivative products group for Republic National Bank of New York. Principia says the operation quickly became profitable, and that an additional office was added in Hong Kong in 1994. But further expansion was inhibited, according to Principia, by the "constraining" regulatory environment. When Republic decided to set up a separate derivatives subsidiary, some 11 members of its 51-strong derivative products group departed to found Principia. Republic still retains joint-ownership of Principia's software along with the principals of the company.